IRS 2016 Tax Brackets
It’s tax season again. One of the most frequently asked questions when people file their United States taxes is, “what is my tax rate?” To answer that question, you need to understand the concept of tax brackets. In this article, we are going to take a look at the Internal Revenue Service’s (IRS) 2016–2017 tax brackets and at how to calculate your effective tax rate.
The IRS uses a progressive tax system. This means different portions of your income are taxed at different rates. In general, the tax rate increases as the taxable income increases. The term “progressive” means that the tax rate progresses from low to high. This is where tax brackets come in. The lower portion of a person’s income fall into tax brackets with relatively low tax rates, while higher portions of their income fall into brackets with higher tax rates.
There are many reasons why many countries in the world have adopted progressive tax systems. The most obvious one is that under such a tax system, a person with lower income will have less tax burden compared someone with higher income. This system is often considered as a way to mitigate income inequality in societies.
One term that U.S. taxpayers often see is “marginal tax rate.” This refers to the amount of tax they have to pay on each additional dollar of their income. It is not to be confused with the effective tax rate. Because the tax rate progresses from low to high, a taxpayer’s effective tax rate is often less than their marginal tax rate.
For individual taxpayers, the effective rate is the average rate at which their income is taxed. For instance, if half of your income is taxed at 10% and the other half is taxed at 15%, then your effective tax rate is 12.5%.
To understand how federal tax brackets work, the easiest way is to illustrate with an example. So let’s take a look at the IRS 2016 tax brackets and see how they work. Note that these are the numbers you would use to prepare your 2016 tax returns in 2017.
IRS 2016 Tax Brackets
2016 IRS Tax Brackets for Unmarried Individual Taxpayers
Taxable Income Tax Due
| $0–$9,275 | 10% of taxable income |
| $9,275–$37,650 | $927.50 + 15% of excess over $9,275 |
| $37,650–$91,150 | $5,183.75 + 25% of excess over $37,650 |
| $91,150–$190,150 | $18,558.75 + 28% of excess over $91,150 |
| $190,150–$413,350 | $46,278.75 + 33% of excess over $190,150 |
| $413,350–$415,050 | $119,934.75 + 35% of excess over $413,350 |
| Over $415,050 | $120,529.75 + 39.6% of excess over $415,050 |
The table above shows the tax brackets and the corresponding taxes due for unmarried individual taxpayers. If a single-filing taxpayer had a taxable income of $100,000 in 2016, they will fall under the $91,150–$190,150 tax bracket. This means their tax due will be $18,558.75 plus 28% of the amount over $91,150.
The calculation is $18,558.75 + 28% x ($100,000 – $91,150) = $21,036.75
That is, if you were unmarried and had taxable income of $100,000 in 2016, you tax due will be $21,036.75.
What is your effective tax rate? Well, just divide your total tax due by your total taxable income. This gives $21,036.75/$100,000 = 21%. This means that for the tax year, approximately $0.21 of every taxable dollar your earned goes to the IRS.
The key to understanding tax brackets is that, unless you fall under the lowest income bracket, different portions of your income will be taxed at different rates. In the example above, your marginal tax rate was 28%. But you are actually paying 10% of the first $9,275, 15% of the amount between $9,275 and $37,650, 25% of the amount between $37,650 and $91,150, and 28% of the amount between $91,150 and $100,000. Therefore, you pay tax at four different rates.
2016 IRS Tax Brackets for Heads of Households
Taxable Income Tax Due
| $0–$13,250 | 10% of taxable income |
| $13,250–$50,400 | $1,325 + 15% of excess over $13,250 |
| $50,400–$130,150 | $6,897.50 + 25% of excess over $50,400 |
| $130,150–$210,800 | $26,835 + 28% of excess over $130,150 |
| $210,800–$413,350 | $49,417 + 33% of excess over $210,800 |
| $413,350–$441,000 | $116,258.50 + 35% of excess over $413,350 |
| Over $441,000 | $125,936 + 39.6% of excess over $441,000 |
If you are unmarried but are supporting a child or other “qualifying persons,” you may be able to file as a head of household. The head of household status has several tax advantages compared to the “single” filing status. One of them is that the tax brackets are wider. For instance, as you can see from the table above, the first tax bracket goes from zero to $13,250. Under the single filing status, the first tax bracket only goes to $9,275. This means that everything else being equal, filing as a head of household could result in a lower effective tax rate.
In order to file your tax as the head of household, you need to meet all three filing status requirements specified by the IRS:
- You are unmarried or considered unmarried on the last day of the tax year
- You paid more than half the cost of keeping up the home for the tax year
- A qualifying person lived with you in that home for more than half the year, except for temporary absences, such as school
2016 IRS Tax Brackets for Married Individuals Filing Joint Returns, and for Surviving Spouses
Taxable Income Tax Due
| $0–$18,550 | 10% of taxable income |
| $18,550–$75,300 | $1,855 + 15% of excess over $18,550 |
| $75,300–$151,900 | $10,367.50 + 25% of excess over $75,300 |
| $151,900–$231,450 | $29,517.50 + 28% of excess over $151,900 |
| $231,450–$413,350 | $51,791.50 + 33% of excess over $231,450 |
| $413,350–$466,950 | $111,818.50 + 35% of excess over $413,350 |
| Over $466,950 | $130,578.50 + 39.6% of excess over $466,950 |
2016 IRS Tax Brackets for Married Individuals Filing Separate Returns
Taxable Income Tax Due
| $0–$9,275 | 10% of taxable income |
| $9,275–$37,650 | $927.50 + 15% of excess over $9,275 |
| $37,650–$75,950 | $5,183.75 + 25% of excess over $37,650 |
| $75,950–$115,725 | $14,758.75 + 28% of excess over $75,950 |
| $115,725–$206,675 | $25,895.75 + 33% of excess over $115,725 |
| $206,675–$233,475 | $55,909.25 + 35% of excess over $206,675 |
| Over $233,475 | $65,289.25 + 39.6% of excess over $233,475 |
The two tables above show the tax brackets for married couples for tax year 2016. If you are married, you can choose to file jointly if you and your spouse agree to file a joint return. When filing a joint return, you and your spouse would report your combined income.
A married couple can also choose to file separate returns. But, as you can see from the two tables, filing jointly typically results in lower taxes compared to filing separately.
Standard Deductions
Other than federal tax brackets, another important thing to take into account before filing taxes is standard deductions.
Depending on your filing status, the IRS specifies a standard deduction amount that you are entitled to exclude from your income. The following table shows the standard deduction amounts for 2016.
2016 IRS Standard Deduction Amounts
Filing Status Standard Deduction Amount
| Single | $6,300 |
| Head of Household | $9,300 |
| Married Filing Jointly | $12,600 |
| Surviving Spouse | $12,600 |
| Married Filing Separately | $6,300 |
As you can see from the table, filing as the head of household allows a taxpayer to claim a standard deduction amount larger than filing as a single taxpayer. Moreover, a married couple filing jointly can claim an amount that’s twice as large as the standard deduction amount for one of them filing separately.
Note that the standard deduction amount increases if the taxpayer or their spouse is 65 years of age or older. The amount also increases if the taxpayer or their spouse is totally or partially blind. The IRS defines partial blindness as having corrected vision no better than 20/200 or having a field of vision of 20 degrees or less. (Source: “20. Standard Deduction,” Internal Revenue Service, last accessed February 7, 2017.)
Claiming standard deductions is an easy process, but it is not the only way for taxpayers to reduce their taxable income; they can also itemize their deductions. If you chose to itemize, you will need to list each of the tax-reducing expenses for the tax year. Some of the deductions include expenses such as mortgage interest, property taxes, and out-of-pocket medical expenses. You would subtract those itemized deductions from your adjusted gross income to arrive at your taxable income.
To decide whether you should claim the standard deduction or itemizing, the IRS recommends that you calculate your itemized deductions and see which option allows you pay the lower amount of tax. Note that some taxpayers don’t qualify for the standard deduction amount and have to itemize. For instance, if you are married but file separately and your spouse itemizes, then you cannot claim the standard deduction amount.
IRS 2017 Tax Brackets
The IRS has announced some inflation adjustments for more than 50 tax provisions for tax year 2017. These adjustments affect how you would prepare your 2017 tax returns in 2018. In particular, the income limits for all tax brackets are adjusted for inflation. (Source: “In 2017, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged,” Internal Revenue Service, October 25, 2016.)
Standard deductions have increased as well. For tax year 2017, the standard deduction for an unmarried single taxpayer and married individuals filing separately is $6,350, up from $6,300 for tax year 2016. For someone filing as the head of a household, the standard deduction also increases by $50.00 from 2016 to $9,350. For married couples filing jointly, the standard deduction amount rises $100.00 to $12,700 for tax year 2017.
Tax Brackets Under Trump
One thing that could change IRS tax brackets is President Donald Trump’s tax plan. During the election campaign, Trump called for a reduction of personal income tax rates from seven to three brackets. Right now, there are seven different rates ranging from 10% to 39.6%. Under President Trump’s plan, there will be just three tax brackets corresponding to three tax rates: 12%, 25%, and 33%.
President Trump has also proposed to substantially increase the amount of standard deductions. The current standard deduction for single filing taxpayers is $6,300; President Trump wants to raise that amount to $15,000. For married couples filing taxes jointly, the standard deduction would be raised from $12,600 to $30,000 under his plan. This means that low-income Americans will have an effect income tax rate of zero.